Expense management

How to track business expenses - 8 effective ways

Apr 05, 2024

Keeping track of business expenses is crucial for the financial health and success of any business. By effectively tracking and managing expenses, businesses gain financial awareness, enhance budgeting and planning, save on taxes, exercise cost control, improve financial reporting, make informed decisions, and streamline reimbursement processes. 


As a founder or finance professional, not only should you know how to track expenses for a small business but also the benefits of tracking business expenses, ways to track them efficiently, the importance of using accounting software, how expense tracking lowers tax bills, methods for maintaining accurate books, and best practices for effective expense tracking.

What are business expenses?


Business expenses refer to the costs incurred by a business in the process of generating revenue. These expenses can include rent, utilities, salaries, marketing expenses, office supplies, travel costs, and more. Identifying and categorizing these expenses is essential for proper financial management.


Depending on which industry your business belongs to, you will notice that you have more of one type of expense as compared to the others.


For example, if you have set up a manufacturing business, then your significant expenses will include transportation and procuring raw materials for production. Whereas if you run a digital product, you may see a significant expense in marketing promotion and advertising. 

What are the benefits of tracking business expenses?



1. Financial awareness


Tracking expenses provides a clear understanding of where money is being spent, enabling businesses to make informed financial decisions.


Whether it is employees spending their budgets through corporate cards or money being transferred to vendors via your payment system; being aware of every expense is necessary to get a complete and accurate picture of company spending. 


2. Budgeting and planning


Accurate expense tracking allows businesses to create realistic budgets and develop effective financial plans for growth and expansion.


When you have a clear idea about the different types of expenses that your company has to bare for a given period of time, you are able to plan and create better budgets for the organization.


3. Tax savings


By tracking business expenses, businesses can identify tax-deductible expenses, maximize deductions and reduce their overall tax liability.


After all, the tax a company has to pay is also a kind of expense at the end of the day. So knowing which part of your business’s expense and income is tax deductible will help you minimize the amount of tax you must pay at the end of the financial year.


Related read: Guide to corporate tax filing for small business in India


4. Cost control


Regular expense tracking helps identify unnecessary or excessive expenditures, allowing businesses to control costs and improve profitability.


Cost control can include removing unnecessary spending or also enforcing policies to restrict the amount employees or teams can spend in a given period. 


5. Financial reporting


Accurate expense tracking leads to comprehensive financial reports that aid in assessing business performance and attracting potential investors.


Additionally, if you use modern tools like expense management software, you’ll be able to automatically sync and export your expense data to your accounting software without too much manual intervention. This saves time and helps you create your financial reports faster. 


6. Decision-making


With a clear overview of expenses, businesses can make data-driven decisions, prioritize investments, and allocate resources effectively.


Having a clear picture of expenses from each day to the entire month will let you make flexible financial decisions based on the circumstances your business faces.


7. Helps during an audit


Proper expense tracking ensures businesses have the necessary documentation and records to support their financial activities in case of an audit.


Even the auditor will appreciate a systematic and thorough expense management report. It will help them conduct the audit faster and more accurately. 


8. Improves cash flow


Being aware of the expenses that you have made and have to make in the future lets you plan and use your cash reserves in a smart way.


Effective expense tracking enables businesses to identify cash flow gaps, optimize payment schedules, and maintain healthy cash reserves. 


Suggested read: Cash flow analysis - Definition, benefits and how to analyze cash flow statement?


9. Streamlines reimbursement


Without proper expense reporting and reimbursement processes, employees may face financial burdens due to their personal funds being used for business purposes. Lengthy and time-consuming reimbursement systems can cause employees mental stress and affect their productivity.


Tracking business expenses simplifies employee reimbursement processes, reducing administrative burden, and ensuring timely reimbursements.



10. Prevent and reduce fraud


There are also chances of internal fraud be it intentional or unintentional. Employees may end up spending for something that does not comply with the company’s expense policy.


In such cases, it is important to have systems and processes that can quickly identify and help you rectify these errors. Consistent expense tracking helps identify irregularities or fraudulent activities, safeguarding businesses from financial losses. 

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How to track business expenses?


If you are wondering how to track expenses for a small business or what are some of the best ways you can do so, then here is a list of options you can choose from:


1. Opening a business bank account


Many business owners make the mistake of using their personal bank account to conduct transactions for their business. Even if you have a relatively small business, you should never do this. Firstly, it mixes up your personal transactions with business transactions. This makes it harder for you to determine and keep track of your business expenses. 


You’ll end up spending a lot of time looking at your statement to note down your business expenses. Secondly, your business income adds to your personal tax liability and ends up becoming an additional financial burden to pay.


By opening a separate business bank account, you will be able to track business expenses accurately without wasting time going through your personal bank statement. It will also keep your business tax liability separate from your personal tax liability. 



Related read: How to open a business bank account in India?


2. Choosing and setting up an accounting system


Select an accounting system suitable for your business size and needs, and set it up properly. While an accounting software system is mainly used to enter all the transactions of your business in the ledger, it is also a good way to keep track of your expenses. 


Most accounting tools come with built-in capabilities to generate different financial reports based on all your entries. This makes it a great choice for businesses to not only track all their transactions and expenses but also get important insights that can be generated with their reporting and analytics functions. 


3. Connecting financial institutions


Integrate your accounting system with your bank and credit card accounts to automatically import and categorize transactions. This is another great way to streamline all your business transactions, especially all your business expenses. 


Rather than having to track your company's expenses in multiple different places, you can figure out a way to connect all your different bank accounts to your tracking system and have all your transactions automatically recorded in a central dashboard.


This will eliminate the time wasted in manually gathering bank statements from different accounts and leave more time for your finance team to indulge in strategic tasks. 


4. Managing and filing receipts


If your business still mandates your employees to manually collect and keep receipts safe until the end of the month to file expense reports, then your organization is following a very old and inefficient method of managing receipts.


Even using an Excel spreadsheet to report these expenses on a weekly basis is not as efficient as you might think. There is still a lot of manual work involved in using such a system. 


Modern businesses have adopted new-age systems to digitize receipts using mobile apps or software, organize them by date and category, and store them securely. This way employees don’t have to worry about losing receipts and finance teams get access to spending data in real time. 


5. Consider using an expense management system


In recent years, many startups exist that primarily provide expense management systems as their core product. These software solutions are developed and made specifically for any and every need that a business might have when it comes to making, tracking, and controlling payments & expenses. 


Utilize expense management systems that provide features like receipt capture, approval workflows, and expense policy enforcement for seamless tracking. These systems also often come with corporate cards, set custom spending limits on them, and give them to your employees to help them directly use company funds and make business expenses. 


6. Integrating expense tracking with accounting


While expense management software solutions are probably the best way to manage, track, and control expenses, an important part of managing business finance is also the accounting of transactions in your ledger. In order to do this, you must choose an expense management software that is capable of integrating with your company’s accounting tool. 


This will help your organization streamline expense tracking by integrating expense management tools with your accounting software for real-time updates without constantly having to manually transfer the data between both platforms.


An automatic sync and export of data will enable you to maintain consistency of transactions across both platforms and ensure that your ledgers are up to date. 


7. Ensuring compliance and audit readiness


Follow accounting standards and maintain accurate records to ensure compliance and readiness for audits. Maintaining a proper record of all your transactions through your expense management system will help your business adhere to compliance and audit requirements. 


You might also be interested to read: How to ensure expense report compliance for your business?

Why consider using accounting software for tracking expenses?


Accounting software offers several advantages for tracking and recording business expenses. Here are some key points:


Efficiency and accuracy


Accounting software automates expense tracking, reducing manual errors and saving time. Using accounting tools, a finance team member won’t have to manually record most business expenses and will be able to automate many expense management tasks. 


Integration and synchronization


It allows integration with other financial systems, streamlining workflows and eliminating duplication. An accounting tool is often also capable of syncing with various other organizational tools like HRMS(Human resource management system) platforms and CRM(Customer relationship management) platforms. 


Real-time insights


Software provides instant access to financial data, enabling businesses to make informed decisions promptly. With the data that is available to it, the accounting tool might be able to generate reports and use the analytics feature to give you specific insights regarding the company’s spending. 


Tax compliance


Accounting software helps track tax-deductible expenses, simplifying tax calculations and minimizing errors. Many such tools are often pre-loaded with your region's tax regulations to help you calculate and accurately follow tax rules based on your transactions. 


Scalability


As businesses grow, accounting software can accommodate increasing transaction volumes and complexities. The bigger your business gets, the more volume of transactions you will have. Accounting software is appropriate for managing these huge volumes. 


Collaboration


Accounting software allows multiple users to access and collaborate on financial data, improving transparency and efficiency.


Whether it is your employees or your finance and admin staff, an accounting platform can help you set up different user roles and give them appropriate access to the platform to carry out their needed tasks. 


Reporting and analysis


Accounting tools can use their smart analytics functions to use the transaction data that your organization has on the platform and use it to give you crucial insights. The software generates comprehensive financial reports, enabling businesses to analyze expenses, identify trends, and make informed financial decisions. 


Suggested read: Paperless expense reporting to streamline expense management


Audit readiness


With accurate and organized records, businesses using accounting software are better prepared for audits. The audit team will also be able to conduct their audit efficiently and make sure that your company is being compliant in all financial regards.

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How tracking expenses will lower your tax bill?


Tracking business expenses effectively can lower your tax bill in the following ways:


1. Identifying deductible expenses


If you don’t maintain proper records of your expenses, you might miss out on some tax benefits. By tracking all business expenses, you can identify which expenses qualify for tax deductions, reducing your taxable income.


2. Maximizing deductions


Depending on your type of business and the region you operate in, your business may have the ability to get many deductions on organizational spending.


Accurate expense tracking ensures you don't overlook any eligible deductions, maximizing your tax savings.


3. Providing supporting documentation


Proper expense tracking helps you maintain the necessary documentation to support your deductions during tax audits. This will only be possible if you maintain a proper record of your business expenses whether you do it manually or through an expense management system. 


4. Complying with tax regulations


Missing data about your business transactions may lead to complications in some situations. Tracking expenses ensures you meet tax compliance requirements, avoiding penalties and unnecessary tax liabilities. 

How to maintain the books for your business?



1. Choose an accounting system


For certain businesses, an accounting system that performs the basic functions at a low cost is a priority. While for other businesses, accounting software that is a little pricier but provides better features and scalability is more important.


Select an accounting system that suits your business size and complexity, considering factors like cost, features, and scalability. 


Also read, A step-by-step guide to understand the accounting cycle process


2. Choose a recording method


When actual payments are made or received, revenue and costs are recorded using the cash basis of accounting. It does not take into consideration the timing of the transactions that generate them.


Contrarily, accrual accounting captures revenue and expenses as they happen, before any money is taken in or paid out. Decide whether you will use a cash basis or accrual basis for recording expenses, and follow the chosen method consistently. 


3. Create expense categories


Establish clear expense categories that align with your business activities, making it easier to track and analyze expenses. It might not seem that important on a smaller scale.


But when your business is expanding and the number plus volume of transactions is increasing, having proper expense categories helps in streamlining the process of managing expenses. 


4. Set an invoicing template


Develop an invoicing template for consistency in recording expenses, including essential details such as vendor name, date, description, and amount.


You can do this easily using smart automated features on your accounting tool. It will help you save time and carry out your tasks much faster. 

Best practices for effective expense tracking


Consistency and accuracy in recording expenses


Maintain a disciplined approach to recording all expenses accurately and consistently.



Regular reviews and reconciliations


Periodically review and reconcile your recorded expenses with bank and credit card statements to ensure accuracy.



Training employees on expense tracking procedures


Educate and train employees on proper expense tracking procedures to maintain uniformity and adherence to policies.



Analyzing expense patterns for budgeting and forecasting


Continuously analyze expense patterns to identify areas for cost optimization, aid in budgeting, and support future financial forecasting. 

How is Volopay the best all-in-one solution to simplify business expenses?


Volopay is a complete expense management solution for the following reasons:


Making payments


No matter what kind of payment your business needs to make, you will be able to make them through Volopay thanks to our diverse payment options.


We offer physical and virtual corporate cards, business accounts that you can use to transfer money domestically or internationally, and also process reimbursements. 


Tracking expenses


Whether you are using a Volopay corporate card or our money transfer system, each and every transaction that happens through our platform and payment tools are recorded instantly.


This helps your finance team stay on top of all business expenses at all times and rectify issues in real-time rather than waiting till the end of the month. 



Custom controls


Budgetary control is a breeze using Volopay thanks to our automated spending control features that you can set up as per your requirements. You can set custom spending limits for each corporate card that you issue so that there is no case of overspending.


You can also create approval workflows for money transfers through Volopay’s system so that there are no unauthorized payments. 


Vendor and invoice management


You can easily create vendor accounts on Volopay and save them in the database so that you don’t have to enter their payment details every time you want to make a payment.


Invoices are also automatically sourced thanks to a feature called 3-way invoice sourcing that fetches invoices from your email. This helps you pay their invoices faster and makes sure that you do not miss out on any payments. 


Accounting integrations


Volopay is an extremely flexible platform and is capable of integrating with any accounting software thanks to our Universal CSV feature.


Our platform also has native integrations with industry-leading accounting tools like Netsuite, Xero, Quickbooks, Tally, Zoho Books, Deskera, MYOB, and more! This helps to make sure that all transactions on Volopay are synced and exported to maintain consistency between your expense management system and your accounting ledger. 


Analytics


The analytics function on Volopay is a smart feature that allows users to gain insights about how their organization is using their budgets and what they can do to improve their spending efficiency.


You can filter based on location, teams, individual employees, and type of payments to see the different aspects of company spending to make better financial decisions. 

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FAQs on expense tracking

What are the best ways to keep track of business expenses and income?

The best ways to track business expenses and income include using accounting software, maintaining organized receipts, connecting financial institutions, and regularly reconciling records.

What types of business expenses are tax-deductible?

Tax-deductible business expenses can include office rent, utilities, employee salaries, marketing expenses, travel costs, professional fees, and business-related equipment and supplies. It's essential to consult with a tax professional for accurate guidance.

Why do most businesses prefer Volopay to track and manage all their business expenses?

Volopay offers comprehensive expense management features, including expense tracking, receipt capture, reimbursement workflows, and policy enforcement. Its user-friendly interface and integration with accounting software make it a preferred choice for businesses.

Is Volopay easy to use?

Yes, Volopay is designed to be user-friendly, with intuitive features and a straightforward interface, making expense tracking and management hassle-free.

Does Volopay have accounting and bookkeeping features?

While Volopay primarily focuses on expense management, it integrates with popular accounting software, allowing seamless synchronization of expense data for bookkeeping purposes.